Construction’s 2022 challenge: Balancing surging work with people, supply shortages

The good news for the Wisconsin construction industry? Between a housing shortage and the long-term boost of the federal Infrastructure Investment and Jobs Act, there’s a lot of business on the horizon, enough to keep contractors hopping for the foreseeable future.

Home construction here for the first six months of 2021 set the pace, propelled by 40% thanks to low mortgage rates and an inventory shortfall. And the infrastructure bill will have far-reaching effects on the construction industry here; $225 million is earmarked for bridges and $198 million for airports alone .

The bad news, though, lies in the industry’s continuing struggle in 2022 to keep up with demand. Shortages – of workers and materials – show no sign of going away, putting pressure on project deadlines and hurting revenues and the bottom line. The same influences make subcontractor performance another worrisome risk. And even while extending the use of technology counters some of the issues of the day, accompanying cyber exposures are also growing.

The opportunities are there. It will take a careful balancing act to leverage them. Here’s what to keep an eye on in the new year.

1. Smart management, alternative materials and luck will help with supply-chain woes

Don’t expect a substantial relenting of the supply disruptions that have hurt the construction industry through 2021. Backlogs of material orders are still measured in months, not days, pushing up the cost of construction goods by 19% as 2022 approached .

The coronavirus’ impact remains one hindrance, but also contributing to the problem have been weather-related disasters. Roofing membranes, for example, are very difficult to find – having fallen victim to the severe winter storms in 2021 in Texas and the Southwest that shut down production of chemicals used to make them .

Solutions aren’t necessarily easy to come by. One is to make greater use of alternative materials, a more viable option these days given substantial improvement in quality. For example, the lumber shortages in 2021 have shined a bright light on mass timber for its strength and fire resistance, and the sustainability factor is another benefit. Plus, it’s manufactured domestically.

New materials also have downside risks, though, so before they are brought into play, it’s important to check out whether their use will have negative impact on property and liability insurance protection.

The general constraints on supply will continue to hamper the industry, with costs, timing and project budgets affected in the wake of interrupted cash flow. In addition to keeping on top of subcontractor health and performance, construction firms will be pressured to extend builders’ risk policies that may expire before projects are completed. Managing risk will require cultivating supplier relationships, with a premium placed on local and regional resources, and stepping back from foreign-made supplies.

2. “Help Wanted”: Now more than ever

The construction labor shortage is only becoming more acute. It’s hard work, and finding new workers to step in as the current workforce, now averaging 43, ages out is a continuing challenge. More than 1 million new construction workers are needed in the next two years , and the median average wage of $37,080 isn’t enough to entice millennials or Gen Zs, given the nature of the work .

The industry has long recognized the need for vocational training, and retraining, too, given the need to staunch a worsening turnover rate – 21.42% – that also hobbles construction firms. Paid apprenticeship training programs are helping, and so does vocational skills training, especially as a solution to high turnover. Enriched benefits should also be a priority.

Training and retraining should focus on technology. Younger, tech savvy workers need to see the expanding role of technology in construction, and the need it’s created for people interested in and comfortable with drones, robotics and other tools. Leveraging the tech card also should be beneficial on the retention front with older workers. Pairing older workers with younger apprentices creates an opportunity to cross-train on manual and tech skills.

3. Exposures to cyber risks grow with tech adoption

The construction business has been much slower than others to adopt new technology. As recently as 2018, in fact, over half of industry respondents to one survey said their businesses had no digital business vision and strategy .

Now the industry is scrambling to make up for lost time. Drone use, for one, is skyrocketing, experiencing nearly 250% year-to-year increases . Industrial-scale 3-D printing has moved well beyond proof-of-concept stage. Automated construction robots and self-driving vehicles are seeing expanded use. Robots and wearable sensors make a big difference in efficiency and safety.

The stakes? A 60% bounce in productivity, delivering as much as $1.6 trillion annually in incremental value .

For all the benefits, though, the downside risks are on the rise, too. The more that construction relies on technology, the more vulnerable the industry and its customers become to cyber crime like ransomware and social engineering. Over 75% of construction and related companies reported in one survey that they had been victim to a cyber attack of some sort in the previous 12 months .

Such crimes are on the upswing in general, of course, and underwriters are more careful than ever in evaluating cyber risks and the sufficiency of mitigation strategies. It’s pushing cyber insurance premiums up by 20% or more in 2022, and making a point to owners and managers: Cyber insurance is not optional. As attacks grow in frequency and severity, any business without it may get hit with devastating losses.